Dollar falls from 3-week high as factory gauge damps safety bid

The dollar fell from the strongest level in three weeks against the euro as a gauge of U.S. manufacturing unexpectedly rose, damping demand for the refuge of U.S. government securities.

The 17-nation currency rose versus all of its 16 most- traded peers after Spain’s latest budget and banking measures spurred bets the euro region is moving closer to curbing its debt crisis. It pared gains as risk appetite slipped and stocks trimmed an advance. The Mexican peso rose versus most of its major peers as the Institute for Supply Management’s U.S. factory index gained last month for the first time since May.

“The euro-dollar move is more of a dollar-lower view,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “We had a pop in risk right after we got the ISM manufacturing numbers, which caused the euro’s biggest spike on the day against the dollar.”

The dollar depreciated 0.3 percent to $1.2892 at 4:17 p.m. New York time, after gaining earlier as much as 0.4 percent to $1.2804, the strongest since Sept. 11. Japan’s currency was little changed at 77.99 against the greenback. The euro advanced 0.3 percent to 100.54 yen.

The Australian dollar touched the lowest level in more than a year against its New Zealand counterpart before the Reserve Bank of Australia holds a policy meeting tomorrow. The Aussie reached NZ$1.2469, the lowest since September 2011, before erasing losses to trade at NZ$1.2521. The currency was little changed at $1.0367.

Low Volatility

Implied volatility, which signals the expected pace of currency swings, was at almost five-year lows. It was 7.89 after touching 7.73 on Sept. 28, its lowest since October 2007, a JPMorgan Chase & Co. index for the currencies of Group of Seven nations showed. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profit.

Europe’s shared currency fell below its 200-day moving average of $1.2824 before erasing losses. It has closed higher than the average every day since Sept. 11.

“The thing that’s been keeping the euro up today is technicals,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “That 200-day moving average is something we’ve been looking at for a while, and a lot of people have been talking about it. Even thought there was a test below on an intraday basis, it’s been holding up as support there. It’s a pretty key pivot.” Support is an area on a chart where buy orders may be clustered.

The Standard & Poor’s 500 Index rallied as much as 1.1 percent before paring the gain to 0.3 percent.